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UnitedHealth may exit Obamacare individual exchanges

UnitedHealth Chief Executive Officer Stephen Hemsley takes part in a panel discussion in Beverly Hills, California, in this file photo taken May 1, 2012. REUTERS/Danny Moloshok/Files

By Caroline Humer

(Reuters) - UnitedHealth Group Inc said it may exit the individual insurance exchanges created under U.S. President Barack Obama's healthcare law, raising new questions about the long-term sustainability of a key Obamacare program.

The largest U.S. health insurer said weak enrollment and high medical costs for exchange members were taking too big a toll on its performance. It will evaluate during the first half of next year whether it will offer Obamacare plans in 2017.

Rivals Aetna Inc and Anthem Inc said last month that they were seeing too few people enroll, but have not said they were considering exiting the business.

"We cannot sustain these losses," UnitedHealth Chief Executive Stephen Hemsley said during a conference call with investors. "We can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself."

A deterioration in the exchanges in the midst of the 2016 election campaign could give ammunition to Republican candidates opposed to the health care law. Democrats could also face pressure if UnitedHealth and other players depart the exchanges because less competition could mean higher insurance premiums.

The U.S. government said the exchanges were growing and giving millions of Americans access to affordable insurance. Enrollment for 2016 opened earlier this month.

"We continue to see more people signing up for health insurance and more issuers entering the marketplaces," U.S. Department of Health and Human Services spokesman Ben Wakana said in email. "Today’s statement by one issuer is not indicative of the marketplace’s strength and viability."

UnitedHealth shares fell 5.5 percent on Thursday, while Aetna lost 7.2 percent and Anthem dropped 6.4 percent. Shares of hospital operators, which had benefited in recent years from an increase in insured patients, also fell, with HCA Holdings Inc down 5.9 percent and Community Health Systems down 8.5 percent.

More than 9 million people are enrolled through the exchanges, which operate in each of the 50 states and the District of Columbia. Most policyholders receive government subsidies to help pay for the plans, based on household income.

UnitedHealth has reversed course on its expectations. Last month, it predicted substantial improvement in 2016 for the Obamacare business. Since then, Hemsley said, the enrollment picture has worsened, making it clearer the medical costs of new customers are unsustainable.

The Obama administration recently estimated that 10 million people would enroll in 2016, far below the forecast of 20 million sign-ups issued by the Congressional Budget Office in June.

UnitedHealth has about 500,000 members with Obamacare plans, making it the fourth-largest insurer on the exchanges. On Thursday, the company said it expected these plans to hurt current-quarter profit by $425 million, or 26 cents per share.

As a result, the company cut its full-year earnings forecast to $6 per share from a previous range of $6.25 to $6.35.

UnitedHealth also said it was pulling back on 2016 marketing for these plans and that they had raised premiums, which should slow growth in the individual business.

For next year, it forecast earnings of $7.10 to $7.30 per share. Analysts on average are expecting $7.28, according to Thomson Reuters I/B/E/S.

NEW COST CONCERNS

UnitedHealth had entered a small number of markets in 2014, the first year the exchanges opened. It began selling plans in about two dozen states in 2015. It is still a smaller player on these markets than Anthem, Aetna and Humana Inc.

"United's experience is unique. They got in late and they entered into some very competitive markets," said Dan Mendelson, president of consultancy Avalere Health. "That said, I think that every insurer is having a harder time in 2016 than they had in 2015, and that they are all going to evaluate this carefully."

UnitedHealth was in many markets where competitors could be helped by its departure, he said.

Spokeswomen for Anthem and Aetna did not provide any new comment on their plans regarding the exchanges.

If large insurers do exit, the exchanges could be dominated by smaller providers who specialize in Medicaid health plans for the poor, said Kaiser Family Foundation senior vice president Larry Levitt.

Insurers had criticized the exchanges before they opened, due to technology problems with the federal government-run HealthCare.gov website and concerns about the cost of covering customers who might be sicker than the general population.

The Obama administration mitigated some of that risk in the first year with payments to insurers, but that funding has declined. About a dozen nonprofit cooperative health plans that sold plans on the exchanges have collapsed.

Consumers have criticized plans for high out-of-pocket deductibles that must be paid before coverage kicks in, as well as steep increases in monthly premiums from year to year.

While the administration could try to boost funding to help mitigate insurer losses, such a plan would not be likely to find support from either political party.

"I don't think any Democrats would want to spend political capital on that right now," said Yevgeniy Feyman, deputy director of health policy at the Manhattan Institute. "Republicans get political capital out of the exchanges failing."

(Reporting by Caroline Humer in New York and Amrutha Penumudi and Ankur Banerjee in Bengaluru; Editing by Savio D'Souza, Michele Gershberg, Lisa Von Ahn and David Gregorio)